Tip from the Geek – Top 5 Trading Signals 07/07-14/2014

The Earnings Flood

The earnings flood is upon us. Tomorrow the official start to the unofficial earnings season begins with the release of earnings from Alcoa. The Aluminum giant has been on a tear all year making new highs just about every week. The current expectation is for the company to beat the estimates, provide positive future guidance and set the tone for the rest of the season. This is also on top of an already improving economic situation that is producing more and more jobs. Last week the ADP and NFP numbers were much better than expected and point to a good summer. In fact, just over the weeked the IMF’s Laggard made some comments about the state of the US economy to the effect that it should see increased growth into the next 18 months. Other parts of the global economy are not doing as well as expected though and could lead to the IMF lowering its global growth estimates for the year.

This week the economic calendar is relatively light. Being the second month of the week and still early in that there just isn’t very much data to be released. This week in the US the FOMC minutes will be the highlight, released Wednesday, with the weekly jobless claims on Thursday next on the list. Next week things pick up again with the FOMC and the BOJ meeting mid week. Neither is expected to alter current policy but both will be closely watched. In Japan the state of Abenomics is still in question, to date the BOJ has been very firm in its estimation of the successes of the program. In the US traders will be looking for hints of expected growth, signs the taper may end sooner than expected and any indication of when interest rates will be raised.

1. Waiting On Earnings

S&P 500

Call/Put = Call

Entry = Below 1980

Expiration = One Month

My Trading Advice

The SPX made some big moves last week, breaking out to another new high and forming a nice bullish candle pattern. The only problem is that the stochastic is forming a potentially wicked divergence that is keeping me from getting to excited with the index at such high levels. Yes the long term trend is still up, yes there is still bullish momentum going into the week but there are also reasons to be cautious which could lead us into a near to short term consolidation/correction. First off there is the FOMC minutes. They don’t get released until 2pm on Wednesday so that means nearly three days of what if’s until then and afterward who knows what. Next up is earnings season, Alcoa reports tomorrow but there is only one other significant release this wee, Wells Fargo, and that is not until Friday. Third, there isn’t much data this week. The data last week was great but was it a one timer? We just cant’ be sure until there is more data.

Now, there isn’t much reason to be bearish, just cautious. I considered trading a put but I just can’t be sure there will even be a correction. There could be a melt-up in the market driven by momentum, economics and earnings expectations….we just can’t know until it happens. For that reason I am trading a call, but with one month until expiry to give time for the market to move past any near term weakness that may occur. My target entry will be below 1980 with one month until expiry.

2. Gold Still Doesn’t Look Shiny To Me

Gold

Call/Put = Put

Entry = Above $1315

Expiry = One Week

My Trading Advice

I just don’t get the bull picture, yes gold bounced but it was on Iraq fear and short covering. There may be a bottom in place but it isn’t tested and there surely isn’t a fundamental reason to go long gold that I have seen, heard or read. Gold prices have not been able to break resistance above $1325-$1330 and not the factors driving the flight to safety that began the short rally are leaving the market. I am still bearish on gold and trading a put with a target entry above $1315 and one week until expiry.

3. Fear Leaving;Supply Entering

USO

Call/Put = Put

Entry = Above $38.25

Expiration = One Week

My Trading Advice

The fear premium in oil brought on by the ISIS militants is leaving the market slowly but surely. There is still no reported threat or impediment to Iraqi oil. At the same time Libyan oil ports are on the brink of reopening after a year of shut downs brought on by political upheaval. Libyan supply will more than double once the two major oil ports are reopened. This will bring down the price of Brent and WTI which in turn will bring down the price of the USO. I am trading a put on the USO with one week until expiry and a target entry above $38.25.

4. Germany One Step Behind

DAX

Call/Put = Call

Entry = Below 10,000

Expiration = One Month

My Trading Advice

While the global economy is improving it is not doing so in lock step. The German and EU economies are about a step behind the US and China. Both the US and China have posted better than expected economic data over the past month and that should lead to an improvement in the EU despite weak data now. The DAX has been playing tug of war across the 10,000 and will soon make a decisive move above it, but when is the question. That is why I am trading a call on the DAX with a target entry below 10,000 and one month until expiry.

5. Banking Sector Bearish

JPM

Call/Put = Put

Entry = Above $56.80

Expiration = One Week

My Trading Advice

JPMorgan and the Banking Sector look pretty bearish right now. The technicals are weak and the stock, at least JPM, is falling from resistance. This could carry into the near term, until earnings are released on Tuesday next week. I am trading a put on the JPM with a target entry above the short term moving average and one week until expiry. If you get into this trade later in the week be sure to shorten expiry to three days.

That’s it for this week; Michael will be here next week with fresh trading tips. Meanwhile, we will be testing Michael’s tips to see what kind of an “expert” he really is. All trading assets and expiry times featured in Michael’s trading tips are based on CommuniTraders Binary Options Trading Platform.

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